If you were invested in stocks and stock mutual funds, 2024 was a charm.
A strong economy, sliding inflation, and the Federal Reserve’s interest-rate cuts totalling one percentage point resulted in higher balances for many retirees’ investments.
The S&P 500 ended the year with a gain of 23%. The Dow Jones Industrial Average jumped nearly 13%, and the Nasdaq ballooned close to 29%.
But how much of that will you get to keep? The dividends and capital gains you get from these investments do come with a tax bite.
Meanwhile, Social Security recipients received a cost-of-living adjustment (COLA) of 3.2% for 2024. That bump might just push you over the income threshold that makes your benefits taxable.
Keeping more of your money in retirement is paramount, and tax time provides ways to protect and maximize your nest egg. Here are some basic ways to lower your tax liability for your 2024 return.
4 ways retirees can save on this year's taxes
Make an IRA contribution
Investing money in an individual retirement account reduces your taxable income, which in turn can mean a lower tax bill.
If you’re already taking your Required Minimum Distributions (RMDs), new contributions can whittle down your taxable income.
Even though you’re “retired,” you or your spouse might have earned some money from a consulting, contract, or part-time gig last year. That means you may be able to make IRA contributions.
Traditional IRA contributions are not limited by how much you make annually, meaning that anyone with earned income is eligible to participate, though your contribution may not be fully deductible. If you (or your spouse) are contributing to an employer-sponsored retirement plan, the tax-deductible portion of your IRA contribution may be further trimmed.
Meanwhile, there's no age restriction on making regular contributions to traditional IRAs.
Contribute to an HSA
In general, you can continue contributing to a health savings account (HSA) as long as you’re not yet enrolled in Medicare and are covered by a high-deductible health plan (HDHP). You can also open an account as a self-employed freelancer or business owner if you have a qualified HDHP.
An HSA is the only account that allows you to put in money on a tax-free basis, builds that money up tax-free, and lets you take it out tax-free for qualified healthcare expenses.
Just like IRAs, you can contribute to an HSA up until the April 15 tax deadline, and doing so reduces your taxable income.
Run the math on the standard deduction
Most tax filers opt for the simplicity of taking the standard dedication and sparing themselves the headache of itemizing.
For tax year 2024, the standard deduction is $29,200 for married couples filing jointly ($14,600 for single filers), so any itemized deductions above that amount would deliver a tax benefit. If you’re 65 or older at the end of the tax year, you can save a hair more on your 2024 taxes by taking the extra standard deduction of $1,950 if you're single or file as head of household. If you file jointly, the bonus deduction is $1,550 for each spouse if you’re both 65 or older.
But taking the standard deduction is not always the best move. Common itemized deductions, such as charitable contributions, state taxes, and mortgage interest, can quickly add up. Take a look at your medical spending, Isaac Bradley, director of financial planning at Homrich Berg, told Yahoo Finance. Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) can also be deducted.
In fact, one of the most common sources of itemized expenses that exceed the standard deduction for retirees is unreimbursed healthcare expenses, he said.
Learn more: Standardized vs. itemized: Which tax filing approach is right for you?
Contribute to a 529 education account
You may qualify for a state tax deduction for contributions made to a 529 education account by April 15 in a few states — Georgia, Indiana, Iowa, Mississippi, Oklahoma, South Carolina and Wisconsin, Bradley added.
“This could save a retiree a little in state taxes if you want to help kids or grandkids with school expenses,” he said.
For other states you need to get those accounts funded by Dec. 21 of the applicable tax year. For example, if you’re the 529 account owner or a contributor, you can subtract up to $2,500 per beneficiary from your Maryland state income for contributions in that calendar year.
Take advantage of older adult tax breaks
Your state, county, or city might also offer income tax breaks or credits if you’re 65 or older. Property tax breaks for older adults are available in some states.
For example, in the District of Columbia, if you're 65 or older, the Senior Citizen Tax Relief reduces your annual real property taxes by 50%. You need to apply for this tax break and can contact your state’s tax agency or local tax office.
Get a leg up on next year’s return
“If you’re already retired, there are several ways to reduce your 2025 tax bill, but these strategies require planning throughout the year and now is the best time to start,” Tamara Telesko, director of Wealth Planning Strategies at TIAA, told Yahoo Finance.
Be strategic about Required Minimum Distributions (RMDs)
If you turn 73 in 2025, you have until April 1, 2026, to take your first RMD. While deferring your first RMD to 2026 could lower your taxable income for 2025, it would mean taking two RMDs in 2026, potentially increasing your tax bill that year, she said.
Utilize Qualified Charitable Distributions (QCDs)
If you’re 70 ½ or older, don’t have enough deductions to itemize, and are charitably inclined, a QCD could be a tax-efficient solution.
“This allows you to keep the benefits of the standard deduction while lowering taxable income — which could also potentially reduce taxes on your Social Security benefits and lower your Medicare premiums. A real win-win,” Telesko said.
For tax year 2025, a QCD allows you to donate up to $108,000 from your IRA directly to a qualified charity. The upside of this strategy is that while the amount you donate is not deductible as an itemized deduction, you don’t have to pay federal taxes on the amount distributed to the charity. That donation counts toward the year's RMD. A number of states also permit taxpayers to deduct or receive a tax credit for qualified gifts to charity.
“One of the big things we see retirees miss tax opportunity-wise is choosing the right way to make a charitable donation,” Howard Hook, senior wealth advisor at EKS Associates in Princeton, NJ, told Yahoo Finance. “If done correctly, you can save a significant amount of taxes,” he added.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in the New World of Work" and "Never Too Old To Get Rich." Follow her on Bluesky.
